Friday, February 13, 2009


GM and Chrysler have to report next week on the progress of their negotiations. The Detroit Press has a good piece on the status of the negotiations between GM and the bondholders. The government requires a 67% reduction in the bondholders claims in order to continue to support the GM. The bondholders are demanding only a 50% reduction in their debt according to the article.

Here is the problem. In any such negotiations it is key for the company, GM in this case to demonstrate to the bondholders that if they don't go along with the deal, the company will file for protection under Chapter 11 and the bondholders will get much less since the company itself will be worth less.

In this case, the bondholders are saying, 'hey GM, we don't believe it. We think the Government will do whatever is necessary to keep you out of Chapter 11. Therefore, you can threaten all you want. We don't believe you will do it.'

In addition, the bondholders don't like that the UAW is getting a better deal. Even if the Government steps in, what credible threat do they have?

Look for the bondholders to get a better deal than the Government wanted them to get. Maybe the cat in the picture above (courtesey of Hypno_Bedhead) is right in this case.

Cheers, Mike

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